Good News! Rates at lowest for 315 years!

I never used to understand the concept of why people stored 'money under the mattress'.
Now, with rates at 1.5% and banks offering diddly squat to park your money with them, the mattress looks like a very attractive option. At least your cash is at hand and not at risk with people like the Icelandic 'terrorist' banks! (boo hiss)

The flip side of this is that people with debt (particularly mortgagees, HM Government) are celebrating the benefits of the recent changes. I have to admit I find it a little bizarre that people are celebrating...
Below is the GBP Globex Index for the last year (graph produced using http://www.timingcharts.com/). The pound has lost 25% of value over the last 6 months. So, in the long term, this is the equivalent of a loss of purchasing power by 25%. If someone told you you were getting a 25% pay cut, would you celebrate? Thought not...

The law of unintended consequences has a nasty habit of biting in these situations. An example in this instance is that there may well be LESS lending by the banks rather than more lending as the government desires. The banks are struggling to rebuild their balance sheets and need to hold reserves - normally by having bank deposits. But if you offer 0.01% interest to savers, they are likely to take their money elsewhere; so less reserves and hence less lending. This was a point made by Nationwide (boo hiss) who last week said they wouldn't be passing any more rate drops on. The risk they face is that it makes sense for cash to go elsewhere.

Is this what our leaders want? It's very hard to tell in the surreal world of finance at present...